Why the semiconductor industry will rise again

Some people are seeing low valuations for the acquisitions of startup companies and asking if it means doom and gloom. Peter Clarke sees it as part of an industry adapting to new economics.

Another way of looking at it is that riding Moore's Law now offers diminishing functional benefits and unit cost benefits but has demanded exponentially increasing NRE costs.

For most people it is time to step of the escalator. It should be no surprise that instead of spending $10 million or $50 million and being able to sell a company for $250 million we now have cost and deal values flipped around. Venture capital firms have spent $100 million to $500 million and more and in some cases can only realize $50 million in value. No wonder those VC firms started running away from rather than towards similar investment opportunities in recent years.

The good news is that the solution is clear and is being adopted around the world. Some call it More-than-Moore. The International Technology Roadmap for Semiconductors (ITRS) produced an excellent white paper in 2011 that pointed out that some applications based around health, transport and energy really benefit from More-than-Moore rather than from miniaturization. And while it is true that ITRS said other applications in security, communications and infotainment can take benefit from billions of transistors on a die it is clear that only one or two companies will be able to command the volumes to justify the cost.

Therefore for most startups the key is to be prepared to get off the crutch of Moore's Law and walk free. Give yourselves a cost advantage by NOT working at the leading-edge and don't routinely just try and push some generally available communications standard or other into digital silicon. It comes down to good old fashioned innovation born of being smart in design and radical in terms of the system-level functional improvement delivered.

That's what companies such as InvenSense Inc. (Sunnyvale, Calif.) – a recent IPO – have done with MEMS-based inertial measurement and navigation components and what Nintendo did with the Wii control baton. It is what PrimeSense Ltd. (Tel Aviv, Israel) did with the optical and infra-red vision system that is at the heart of the Microsoft Kinetic system. It is what scores of other startups are doing and it is one of the reasons I am not overly concerned about a lack of investment in semiconductors. It is also noticable that a number of MEMS acquisitions have commanded good exit prices. Murata Manufacturing Co. Ltd. has announced it has agreed to buy VTI
Technologies Oy (Vantaa, Finland) for about 20 billion yen (about 190
million euro or $260 million) in cash and SensorDynamics AG went to Maxim Integrated Products Inc. for about $130 million.

It is true we are not seeing the same amounts of venture capital invested overall as we did in the first half of the last decade, but good ideas continue to get backing. And this is because silicon, semiconductors and electronics in their broadest manifestations are still a great way to create wealth and improve the well-being of the world.

Peter--what you are saying is that success comes from going with analog and MEMS--"we" analog folks knew this all along! Many analog companies have done very well by NOT looking to the next process node for success, but by using older processes to the max--fab is easier to get, less expensive, and plenty of good, used equipment for fab and test is available cheap!

The industry and the systems our ICs go in need both -- the advanced process geometries for the Big D-Little A SoCs, and the larger geometry boutique processes for the Big A-Little D analog, power and MEMS functions.
Miniaturization is still critically important, but there are other ways to achieve it besides making one big die in the latest process -- SIP and TSV for example.
There are still plenty of opportunities for fabless startups, but the name of the game is IP, whether digital, analog or electro-mechanical. This has been true for a very long time, ever since the rise of the fabless business model.
Startups are by definition fabless and also don't have deep pockets. Show me a startup with valuable new IP and patents to protect it, and I'll show you a potential ROI. But show me a startup whose business plan is based on taping out the next great 28 nm SoC and I'll show you a bunch of dreamers who will never get funding.

@Bill
I could have guessed that you might like my opinion on this. But it is more complex than digital bad; analog plus MEMS good.
We will still need digital, and big digital at that. But the economics have changed.
If we get on to beyond-CMOS, or 3-D processing, or quantum computing; the economics will change again.
But it always comes down to innovation and its cost, the functional value created and protectability.

The industry has essentially experienced a split into two segments: more Moore and more than Moore...more Moore still exists, IC designs still move to 22nm, Intel, Arm, Broadcom etc but there are fewer and fewer players around as it gets more expensive to design...more than Moore requires putting some smarts into play, MEMs is only one example, there are many others, 0.35um process might be quite sufficient here, there is still some room for VC funding but the good, old days of late 90-ties will NOT return...Kris

If I remember correctly, Silicon Blue's secret sauce was the optimization of its processor for low power (in HW, not SW), more than the lowest-node advantage. Still, Lattice did mention that the acquisition gave them (Lattice) a way down to 22nm that was missing with their own product line.

The industry is monopolized with a few giants waddling down a single path. None of them need any innovation.
On ther other hand, they present juicy targets for patent trolls. That is the only kind of start up that may do OK.

I think "How the semiconductor industry will rise again" is a more fitting title for this article. Another path is to the dramatic increase the pervasiveness of ICs. For example EETimes has reported "The internet of things" earlier. By embedding a microprocessor and communication capability into everything from coffee makers to mattresses, the demand for semiconductor products will increase.

I thought that the migration to multicore CPUs already showed us that we were getting to the point of diminishing returns with Moore's Law, no? Clock speeds have been hovering around 3 GHz for quite some time now. At least 10 years, I'd say.
Another not-new trend is the ever increasing presence of uPs in all manner of consumer products. But even that trend started way back, with the initial introduction of single-chip computers. The uPs just get more and more pervasive.
But I don't see how this translates to the semiconductor industry rising again? I guess I'm saying, where is the discontinuity? Presumably, the few fabs which can produce the large scale integration chips economically will continue to see brisk demand, as their chips find their way into more products. Which has been happening for quite some time now. New ideas will certainly emerge, for even more clever ways of making better use of uPs, but it would take something more "disruptive" to reverse the trend in fabs?

The semiconductor industry is 50+ years old and is driven by theoretical knowledge and open sharing of it. The industry is still rising but that is happening in Taiwan, So. Korea. Both manufacturing and R&D expertise have now dispersed quite widely to enable much potential for profit in the developed West. They attract capital not just from their own but also from investors in the mature economies. Thus the inversion in investment - payout ratio mentioned by Peter re: silicon blue.